The average duration of new-build BESS sites has increased by almost 60% in Great Britain since 2018, as cell costs fall and batteries move to energy trading markets. 75% of batteries still have a duration under two hours, so when does augmentation of these projects to add additional energy capacity make sense?
In this article, we use the following definitions when referring to BESS augmentation:
- Rated power: a measure of the amount of continuous power a system can provide, determined by the size of the grid connection. Measured in MW.
- Duration: the amount of time that this power can be delivered for. Measured in hours.
- Energy capacity: the product of these two. Measured in MWh.
One-hour batteries were built when lithium prices were high and frequency response markets were unsaturated
As recently as 2023, the majority of battery revenues came from providing frequency response services.
Prices in these unsaturated markets were high and throughput requirements low, meaning there was little reason to trade energy. In frequency response services, NESO pays batteries for contracts based on the power they can provide, rather than energy. This meant that doubling energy capacity from one to two hours only increased total revenues by 23%.
Lithium prices in 2023 were five times higher than current levels, meaning that adding an additional hour of energy capacity to a project increased the already high Capex by a further 50%, for little extra revenue.
This meant that one-hour batteries had higher returns, even though developers projected the two-hour revenue premium would increase over time as frequency response markets saturated. As a result, three-quarters of installed batteries have a duration of less than two hours.
It’s becoming cheaper to add an extra hour of duration, which earns more revenue
Lithium prices have now returned to their pre-2022 historical average. Modo Energy’s central forecast scenario projects these costs falling further, as more supply comes online. Battery owners may be looking to capitalize on falling Capex to augment sites build in a different market.
Adding an hour of duration to an existing site is now 48% cheaper than building a new one-hour battery
Due to the modular nature of BESS, augmentation of a project to upgrade the energy capacity involves adding additional containerized BESS units and a small amount of additional work, such as ground works and cabling.